<DOC> [107th Congress House Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:89164.wais] FEDERAL DEBT COLLECTION: IS THE GOVERNMENT MAKING PROGRESS? ======================================================================= HEARING before the SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL MANAGEMENT AND INTERGOVERNMENTAL RELATIONS of the COMMITTEE ON GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS SECOND SESSION __________ NOVEMBER 13, 2002 __________ Serial No. 107-239 __________ Printed for the use of the Committee on Government Reform Available via the World Wide Web: http://www.gpo.gov/congress/house http://www.house.gov/reform U. S. GOVERNMENT PRINTING OFFICE 89-164 WASHINGTON : 2003 ____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 COMMITTEE ON GOVERNMENT REFORM DAN BURTON, Indiana, Chairman BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California CONSTANCE A. MORELLA, Maryland TOM LANTOS, California CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania STEPHEN HORN, California CAROLYN B. MALONEY, New York JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington, THOMAS M. DAVIS, Virginia DC MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio BOB BARR, Georgia ROD R. BLAGOJEVICH, Illinois DAN MILLER, Florida DANNY K. DAVIS, Illinois DOUG OSE, California JOHN F. TIERNEY, Massachusetts RON LEWIS, Kentucky JIM TURNER, Texas JO ANN DAVIS, Virginia THOMAS H. ALLEN, Maine TODD RUSSELL PLATTS, Pennsylvania JANICE D. SCHAKOWSKY, Illinois DAVE WELDON, Florida WM. LACY CLAY, Missouri CHRIS CANNON, Utah DIANE E. WATSON, California ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts C.L. ``BUTCH'' OTTER, Idaho ------ ------ EDWARD L. SCHROCK, Virginia ------ JOHN J. DUNCAN, Jr., Tennessee BERNARD SANDERS, Vermont JOHN SULLIVAN, Oklahoma (Independent) Kevin Binger, Staff Director Daniel R. Moll, Deputy Staff Director James C. Wilson, Chief Counsel Robert A. Briggs, Chief Clerk Phil Schiliro, Minority Staff Director Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations STEPHEN HORN, California, Chairman RON LEWIS, Kentucky JANICE D. SCHAKOWSKY, Illinois DOUG OSE, California MAJOR R. OWENS, New York ADAM H. PUTNAM, Florida PAUL E. KANJORSKI, Pennsylvania JOHN SULLIVAN, Oklahoma CAROLYN B. MALONEY, New York Ex Officio DAN BURTON, Indiana HENRY A. WAXMAN, California Bonnie Heald, Staff Director Dan Costello, Professional Staff Member Chris Barkley, Clerk Mark Stephenson, Minority Professional Staff Member C O N T E N T S ---------- Page Hearing held on November 13, 2002................................ 1 Statement of: Moseley, James R., Deputy Secretary, Department of Agriculture, accompanied by Thomas C. Dorr, Under Secretary for Rural Development, U.S. Department of Agriculture, and Carolyn Cooksie, Deputy Administrator, Farm Loan Programs, Farm Service Agency, U.S. Department of Agriculture; Gary T. Engel, Director, Financial Management and Assurance, U.S. General Accounting Office; and Richard L. Gregg, Commissioner, Financial Management Service, Department of the Treasury............................................... 5 Letters, statements, etc., submitted for the record by: Engel, Gary T., Director, Financial Management and Assurance, U.S. General Accounting Office, prepared statement of...... 16 Gregg, Richard L., Commissioner, Financial Management Service, Department of the Treasury, prepared statement of. 39 Horn, Hon. Stephen, a Representative in Congress from the State of California, prepared statement of................. 3 Moseley, James R., Deputy Secretary, Department of Agriculture, prepared statement of......................... 9 Schakowsky, Hon. Janice D., a Representative in Congress from the State of Illinois, prepared statement of............... 52 FEDERAL DEBT COLLECTION: IS THE GOVERNMENT MAKING PROGRESS? ---------- WEDNESDAY, NOVEMBER 13, 2002 House of Representatives, Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations, Committee on Government Reform, Washington, DC. The subcommittee met, pursuant to notice, at 10 a.m., in room 2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding. Present: Representatives Horn, Schakowsky and Owens. Staff present: Bonnie Heald, staff director; Henry Wray, senior counsel; Dan Daly, counsel; Dan Costello, professional staff member; Chris Barkley, clerk; Ursula Wojciechowski, staff assistant; Juliana French, intern; Dave McMillen, minority professional staff member; and Jean Gosa, minority assistant clerk. Mr. Horn. A quorum being present, the Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations will come to order. Our hearing today concerns a subject that has been one of the subcommittee's highest priorities over the years: improving debt collection in the Federal Government. The subcommittee developed legislation that was enacted as the Debt Collection Improvement Act of 1996. Since then, the subcommittee has held numerous hearings on how well the act has been implemented. Today's hearing will focus on what the Department of Agriculture has done to improve its debt collection performance since we last heard from the agency in December 2001. The Department's performance is particularly important because more than one-third of all non-tax debt that is owed to the Federal Government is owed to the Department of Agriculture. Our hearing will also look at governmentwide progress in implementing the Debt Collection Improvement Act. I'm pleased to note that the Agriculture Department has done much to improve its debt collection over the last year. Our witnesses will testify that the Department is giving much higher priority to debt collection than it had in the past and this heightened attention is paying off. However, the Department must sustain its attention to debt collection because many challenges remain. Implementation of the act is also improving governmentwide. Federal agencies are now referring most of their eligible debts to the Treasury Department, as required by the act. And the Treasury Department's collection results are improving each year. For example, Treasury has collected about $15 billion in delinquent debt through its offset program. The Treasury Department also has collected over $100 million through its contracts with private collection agencies. During fiscal year 2002 alone, collections by private contractors amounted to $43 million. This represents more than a 60 percent increase over fiscal year 2001. At the same time, we still have a long way to go before the Debt Collection Improvement Act will realize its full potential. Agencies should be referring all eligible debts to the Treasury Department, not just most of them. Agencies should greatly improve the timeliness of their referrals in order to meet the act's requirement that debts be referred once they have become more than 180 days delinquent. Finally, agencies should make much greater use of the full range of collection tools that the act provides. [The prepared statement of Hon. Stephen Horn follows:] [GRAPHIC] [TIFF OMITTED] T9164.001 [GRAPHIC] [TIFF OMITTED] T9164.002 Mr. Horn. Our witnesses today are quite familiar to this subcommittee. I want to welcome each of you and commend you for your efforts. We'll start with the Honorable James R. Moseley, Deputy Secretary, Department of Agriculture. He is accompanied by the Honorable Thomas C. Dorr, Under Secretary for Rural Development, U.S. Department of Agriculture; and Carolyn Cooksie, Deputy Administrator, Farm Loan Programs, Farm Service Agency, U.S. Department of Agriculture. Gary T. Engel, Director, Financial Management and Assurance, U.S. General Accounting Office, and the person that has really put everything moving because of the secretaries of the Treasury and behind him. And Richard L. Gregg has done a tremendous job. Commissioner, Financial Management Service, Department of the Treasury. [Witnesses sworn.] Mr. Horn. So let us start now with Mr. Moseley. STATEMENTS OF JAMES R. MOSELEY, DEPUTY SECRETARY, DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY THOMAS C. DORR, UNDER SECRETARY FOR RURAL DEVELOPMENT, U.S. DEPARTMENT OF AGRICULTURE, AND CAROLYN COOKSIE, DEPUTY ADMINISTRATOR, FARM LOAN PROGRAMS, FARM SERVICE AGENCY, U.S. DEPARTMENT OF AGRICULTURE; GARY T. ENGEL, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE; AND RICHARD L. GREGG, COMMISSIONER, FINANCIAL MANAGEMENT SERVICE, DEPARTMENT OF THE TREASURY Mr. Moseley. Thank you, Mr. Chairman, and good morning. We want to thank you for the opportunity to be here this morning. We're just pleased to be here, considering the circumstances that occurred at the Department this morning, having to clear a couple of buildings because of a bomb difficulty that we had. But it is a pleasure to be here. We want to discuss the results of the Department's improvement in relation to implementing the Debt Collection Improvement Act since I testified before this subcommittee last December. As was indicated, I have Tom Dorr with me here today who is our Under Secretary for Rural Development, a very important part of this; and I wanted to let you know that Tom has an intense interest in this issue, as I do. I'd hoped to have Hunt Shipman, who is our Under Secretary for FFAS, but we had to change the hearing date and Hunt had to travel, so I have the very capable help of Carolyn Cooksie who has worked on these issues and understands the provisions in detail. I also want to take just a second to recognize another person that I know that you're familiar with and that's Ted McPherson. Ted is our Department CFO; and, frankly, Ted is one who has made some significant steps forward within the Department in terms of the reconciling of the Department's accounting principles. Now I recognize that this hearing today isn't about the Department's accounting, but Ted has helped in a significant way to lead us to an understanding of the magnitude of our outstanding loan balances, and he's helped move the Department forward in terms of managing our cash and the loan portion of the USDA portfolio. I'll tell you that it's been a very helpful inclusion of intellectual capital, and Ted is helping move this Department forward. While we are making progress in debt collection from delinquent borrowers, we fully respect, and we're trying to honor, the principles and the actions delineated in the debt collection act. The primary principle, I believe, based on the testimony that I gave you last year, is coming from the agricultural farmer and watching the circumstances in the 1980's out there when there were some borrowers that walked away from their obligations. My belief as a result of that is that a loan is an obligation by the Federal Government to assist or to help an individual borrower. But with that commitment comes the expectation that the commitment that is made on behalf of the Federal Government will be paid back by the recipient. Of course, it's that repayment that is in question in this hearing and for which we as a government entity have a responsibility to insure that borrowers meet their responsibility to the taxpayer. That is the important obligation that we at USDA are continuing to make, commitments to ensure borrower compliance. I first want to give the subcommittee just kind of a brief profile of the components that make up our credit program, and then what I really want to do is focus on the actions that we continue to take to improve our performance in this area. As you well know, Mr. Chairman, every day USDA's programs serve the Nation's farmers, ranchers, our rural communities and those needing food assistance. If you look at it, we finance a broad array of programs: water and waste management systems and housing, electric and telephone utilities, rural businesses, farm ownership and operations, and emergency disaster assistance and relief. This is an extensive list. It's an extensive list of lending programs that makes USDA the Federal Government's single largest provider of direct credit. As of June 30, 2002, our $103 billion in debt obligations represented 35 percent of the $297 billion in non-tax debt owed to the Federal Government. Our current outstanding delinquent obligation at USDA is $6.1 billion, which does represent a decrease of about 30 percent from the $8.8 billion that we reported in delinquencies in 1996. Of this $6.1 billion, $4.7 billion is precluded from these tools due to statutory or administrative requirements. In other words, these debts may involve bankruptcies or litigation, or a substantial portion is owed by foreign or sovereign entities from which collection is difficult and really requires other departments' assistance for us to recover loan losses. This leaves us then with about $1.4 billion that we can legitimately collect via the prescribed mechanisms in DCIA. In December 2001 I committed to this committee to making sure that USDA implemented the provisions of the Debt Collection Improvement Act and, more importantly, that we do it correctly. I pledged that we would be able to accomplish most of the then existing GAO recommendations by December 31, 2002. I also committed 60 percent of eligible USDA debt would be referred to the Treasury cross-servicing program by the end of fiscal year 2002. I also promised to monitor this progress and report back to you, and it's those commitments that I want to reflect on here today. So that raises the question: Where are we currently? Well, first of all, we've made some realistic improvements, just as I committed on behalf of the Department to do so almost a year ago. I am pleased to report that USDA has made substantial progress in developing new processes and procedures to implement most of the GAO recommendations found lacking in their report to you in the year 2001 and again in March 2002. For example, and perhaps most important, because it's a real measurable outcome, USDA's referral rate to the Treasury cross-servicing program was 58 percent through June 30, 2002, versus 14 percent in fiscal year 2001. We fully expect the referral rate will be over the commitment of 60 percent when we receive the final September 2000--September 30, 2002, year end report. This was something that I was expecting and hoped at that time would happen. But I have to confess I was trusting that the agencies would deliver it when I stated it. As I will say, both FSA and Rural Development have made substantial progress since our hearing last December. I'm not going to go through each accomplishment in detail because it's in the written testimony, but I would like to take just a second and highlight a few key areas. Both agencies have made commitments and then met them by implementing several changes as recommended by GAO. Let me give you a quick summary. FSA began quarterly referral of all eligible judgment loans to the Treasury cost-servicing program. They identified co- debtors for all loan payments. I remember this was a serious issue a year ago and frankly it was one that I questioned why we weren't doing it. FSA also revised their oversight procedures to guide field offices in timely routine updates to the program loan accounting system. This helped our field staff know more quickly when to get a problem loan moving, thus limiting the timeframe from delinquency to referral. They revised loan application forms for establishing all the guaranteed loan losses as Federal debt rather than just the percent of obligation heretofore loaned by the Federal partner at closing. The Rural Housing Service discussed with Treasury the issue of report accelerated balances of delinquent single family housing direct loans, and they're going to comply with Treasury's decision to report the accelerated unpaid balance. More broadly, across USDA we established an administrative wage garnishment work group; and we're moving forward in developing a department-wide implementation plan. In short, I think substantial results have been achieved since last December, results that I hope indicate the interest of the Department to address these issues. But, as always, there's still more to accomplish. There's some remaining actions that require more detailed development and regulatory time lines. In my discussions with USDA staff, I've learned that we need to finalize a rule on guaranteed loans for single family housing so we can proceed to refer that area of unpaid debt to Treasury. My understanding is that we're going to get that done in mid-2003. That reflects in part my desire to have Under Secretary Dorr here with me today who has the lead for Rural Development. Just as Ted McPherson helped us as a result of his interest here last year, we have now have Tom appointed and he's one more member of the team who can help oversee this law and, most importantly, can get it done. We also need to keep focused on monitoring about what we're doing, just keeping an eye on the progress. Questions arise about how are we doing on tracking delinquencies, are we current and, more important, are we accurate? Are the referrals to Treasury what they should be and are they on time? It's a simple management concept, but I want to keep ourselves informed via our own monitoring about our improvement before we read about it in a GAO report. The bottom line is, though, that the Department has made a commitment to meeting the provisions of DCIA and moving to honoring that commitment in the past year. It seems we've improved, and it's been done with some important measurable outcomes. Yet, as I listen to others in the Department, I know that we have a few things that remain to be accomplished, and it's only logical that we need to stay focused and stay focused at the program level to get it done. We have the absolute commitment of the leadership. Now we need to make sure we turn that to the program level and accomplish it. Again, we thank you for the opportunity to report good progress, and we continue to pledge to you as a part of the overall management improvement asked for by the President that this issue commands the priority and therefore the attention of the Department. That concludes my remarks, Mr. Chairman; and we thank you for the opportunity. Mr. Horn. Well, thank you, because you have had wonderful progress. We now will use your people for the questioning. [The prepared statement of Mr. Moseley follows:] [GRAPHIC] [TIFF OMITTED] T9164.003 [GRAPHIC] [TIFF OMITTED] T9164.004 [GRAPHIC] [TIFF OMITTED] T9164.005 [GRAPHIC] [TIFF OMITTED] T9164.006 [GRAPHIC] [TIFF OMITTED] T9164.007 Mr. Horn. We'll now move to the General Accounting Office, Gary Engel, Director of Financial Management and Assurance. Mr. Engel. Mr. Engel. Mr. Chairman, good morning. It's my pleasure to be here today to discuss progress that the Department of Agriculture has made addressing key challenges in its implementation of the Debt Collection Improvement Act of 1996. I will also describe the status of the Department of Treasury's use of a special financial incentive provision of the act to encourage agencies to improve their delinquent debt collection efforts. Almost a year ago I testified before this subcommittee that the Department of Agriculture, primarily the Rural Housing Service and the Farm Service Agency, faced challenges in implementing key provisions of DCIA. I stressed that agency implementation would have to improve vastly if the debt collection benefits of the act were to be more fully realized. Also during that hearing, Agriculture pledged to place a higher priority on delinquent debt collection and to implement the acts fully. After the hearing, GAO made recommendations to Agriculture to help the Department to implement the corrections that we had identified. My testimony today will provide an update on actions that Agriculture has taken to address these problems. Agriculture's full implementation of the key provisions of DCIA is critical to overall Federal non-tax debt collection. As a major Federal lending agency, the Department continues to hold a substantial amount of delinquent Federal non-tax debt. As of September 30, 2001, Agriculture reported holding about $6.2 billion of non-tax debt over 180 days delinquent, which is the very type of debt that the DCIA provides tools to collect. I am pleased to report today that recent actions taken by Agriculture demonstrate that, overall, the Department is placing a higher priority on DCIA implementation. The Rural Housing Service has worked to address systems limitations that hampered it from referring eligible debts to Treasury for cross-servicing in the past and is now promptly referring all such debts. In addition, the Rural Housing Service will begin reporting the entire unpaid principal balances on accelerated debt as delinquent. The agency is also working on making regulatory changes needed for it to refer losses on guaranteed loans to Treasury's Offset Program. However, these changes are not expected to occur until August 2003. The Farm Service Agency has developed an action plan to improve its process and controls for identifying and referring eligible debts to Treasury. Our review of documents related to the plan indicates that the agency has made progress toward implementing the improvements, but work will need to continue well into fiscal year 2002. By December 2002, the Farm Service Agency also plans to begin reporting co-debtor information when referring delinquent debts for collection action, but a significant effort will be needed to refer all eligible co-debtors. Also by the end of this calendar year the Farm Service Agency expects to begin referring debts to Treasury's Offset Program on a quarterly rather than annual basis and to be able to refer eligible losses on guaranteed loans when such losses occur. Experts have previously testified before this subcommittee that the administrative wage garnishment can potentially be an extremely powerful debt collection tool. We found that Agriculture has taken steps toward agency-wide implementation of administrative wage garnishment, including completing its written implementation plan. The Department, however, still needs to carry out various elements of the plan, including specifying the types of debts that will be subject to administrative wage garnishment and finalizing an agreement with the Department of Veterans Affairs to conduct related hearings on Agriculture's behalf. Agriculture has also drafted regulations necessary for implementing administrative wage garnishment which may not be published until May 2003. Regarding the DCIA provision to refer agencies' financial incentives for collecting delinquent debt, Treasury established a debt collection improvement account and has twice requested appropriations authorizing expenditures from the account. Thus far, however, no expenditures have been authorized. While we support in principle the DCIA incentives for effective debt collection, the overall success of DCIA has not depended nor should it upon the availability or use of a financial incentive. Debt collection is a fundamental aspect of administering credit programs and DCIA contains specific requirements for Federal agencies that were designed to improve the collection of delinquent non-tax debt. As you know, debt collection has historically not been a high priority at some credit agencies. However, largely due to this subcommittee's effective oversight of agencies' DCIA implementation under your leadership, Mr. Chairman, the envisioned benefit of these requirements has begun to materialize. In summary, through Congress--in summary--excuse me-- through DCIA, Congress with key leadership from this subcommittee has provided agencies, including Agriculture, with a full array of tools to collect delinquent non-tax debt. It pleases me to testify today that Agriculture, an agency critical to collection of Federal non-tax debt, has recently taken and plans to continue to take steps that demonstrate a significantly increased commitment to implementation of DCIA. I must, however, emphasize that it will take a sustained commitment and priority by top management to fully address the remaining problems that we had identified. Mr. Chairman, this concludes my summary remarks. I would be pleased to answer any questions that you or other members of the subcommittee may have. Mr. Horn. I thank you on that presentation. I notice quite a few things here. [The prepared statement of Mr. Engel follows:] [GRAPHIC] [TIFF OMITTED] T9164.008 [GRAPHIC] [TIFF OMITTED] T9164.009 [GRAPHIC] [TIFF OMITTED] T9164.010 [GRAPHIC] [TIFF OMITTED] T9164.011 [GRAPHIC] [TIFF OMITTED] T9164.012 [GRAPHIC] [TIFF OMITTED] T9164.013 [GRAPHIC] [TIFF OMITTED] T9164.014 [GRAPHIC] [TIFF OMITTED] T9164.015 [GRAPHIC] [TIFF OMITTED] T9164.016 [GRAPHIC] [TIFF OMITTED] T9164.017 [GRAPHIC] [TIFF OMITTED] T9164.018 [GRAPHIC] [TIFF OMITTED] T9164.019 [GRAPHIC] [TIFF OMITTED] T9164.020 [GRAPHIC] [TIFF OMITTED] T9164.021 [GRAPHIC] [TIFF OMITTED] T9164.022 [GRAPHIC] [TIFF OMITTED] T9164.023 [GRAPHIC] [TIFF OMITTED] T9164.024 [GRAPHIC] [TIFF OMITTED] T9164.025 [GRAPHIC] [TIFF OMITTED] T9164.026 [GRAPHIC] [TIFF OMITTED] T9164.027 Mr. Horn. Let's go to Commissioner Gregg, and then we'll go to questions. Mr. Gregg. Thank you, Mr. Chairman, members of the subcommittee. With your permission I'll submit my entire statement for the record and summarize it. Thank you for inviting me to testify this morning to provide an update on the Financial Management Service's implementation of the Debt Collection Improvement Act of 1996. As always, the subcommittee's and your strong personal support has helped Treasury Department in implementing a remarkably successful governmentwide debt collection program. It is a program that provides exceptional leadership across government, has significantly increased the collection of delinquent debts, and has greatly improved the government's ability to accurately report outstanding delinquent debt. Mr. Chairman, I understand that you're retiring at the end of this Congress; and I would like to take this opportunity to state that it has truly been a pleasure to work with you and your staff. I believe that you leave behind an important legacy in greatly improving the Government's debt collection, and I'd like to wish you all the best in the coming years. Mr. Horn. Well, thank you. And I hope you can get the tax crowd to do what you have done with the non-tax. They're in Treasury, and I gather they think we have a law. I don't know why. Just keep going. And I was very impressed by the private collection. Go ahead. Mr. Gregg. It is now apparent that Treasury's debt collection program is a fully mature one, and it's developed into an integral component of Federal financial management. You may be interested to know that the Treasury program has become a benchmark model. The United Kingdom and an Australian state government are both studying our policies and procedures as they develop their centralized debt collection programs. Today, Mr. Chairman, I will discuss our near-term and future program plans as well as update you on the overall progress. Before I discuss these two issues, I'd like to give you a brief report on the USDA's participation in the program, as well as share my views on the initiative commonly referred to as ``gainsharing.'' And, Mr. Chairman, I'd also like to submit for the record a report on the progress FMS made during fiscal 2002 in the debt collection program. I am pleased to report a substantial increase in the number of delinquent debt referrals from the USDA; and, specifically, I would single out the Rural Housing Service, from which we received approximately $231 million in cross-servicing referrals in fiscal 2002. Through 2001, we had received only $8.5 million. The Farm Service Agency has also taken some recent positive steps in transferring debts to FMS. This fiscal year we received $130 million and last year we had only received $10 million--this fiscal year being 2002 compared to 2001. The Food and Nutrition Service, I would add, continues to excel in their participation; and you may be assured that Treasury remains committed to working with USDA to eliminate any barriers to program participation. As you know, Mr. Chairman, DCIA also includes a provision designed to provide an incentive known as gainsharing for agencies to increase collections of delinquent debt by reimbursing them for certain expenses related to collection. Although no funds have actually been appropriated for gainsharing accounts for reimbursement purposes, Treasury has developed procedures that would enable us to activate the program if and when funds do become available. As you pointed out, since enactment of the DCIA, FMS has collected about $15 billion in delinquent debts; and since FMS was given responsibility for centralized collection of debt we have sharply increased collections through program changes, adding numerous payment streams and categories of debt and have actively worked with agencies to overcome obstacles. In fiscal 2002 alone, Treasury collected $2.8 billion in delinquent debt, including $1.47 billion in past-due child support, $1.2 billion in Federal non-tax debt, and almost $180 million in State and Federal tax debt. Treasury has also worked hard to have agencies refer eligible debt in a timely manner. Last fall, at your suggestion, Secretary O'Neill wrote to the heads of all departments and agencies on the importance of debt referral. In the last year, FMS made improvements to the Treasury Report on Receivables which enables us to more actively monitor and evaluate agency referral and collection performance by generating computerized 5-year trend analysis reports. Also in the last year, more than 1,100 agency participants attended various FMS sessions on debt collection throughout the country. These actions have produced outstanding results. For both the Treasury Offset Program and cross-servicing, currently 93 percent of debt identified as eligible has been referred. To put this in perspective, at the end of fiscal 99, agencies had referred to Treasury only 43 percent of their eligible delinquent cross-servicing debt. Mr. Chairman, I'd like at this time to give the subcommittee a progress report on some of Treasury's collection initiatives. With the cooperation of the Social Security Administration, the offset of benefit payments, which is an extraordinarily complex undertaking, continues to go smoothly. In fact, for fiscal 2002, FMS collected approximately $55 million in Federal non-tax debt through this program. As you know, Mr. Chairman, the House version of the welfare reform legislation includes a provision to authorize offsets of Federal payments including SSA payments to improve the collection of delinquent child support debt. FMS and HHS are working with the Senate in an effort to include a similar provision in the Senate version of the bill. An estimated $50 to $100 million annually in lost child support collections are at stake. This provision would enable us to aggressively target the collection of these funds. With the good support of the IRS, implementation of the continuous Federal tax levy initiative continues to go smoothly. Of all the payments being levied, Social Security benefit payments account for most of the levies. For fiscal 2002, approximately $60 million was collected. FMS implemented the program to collect delinquent State tax debt in 2000; and for fiscal 2002, $119 million was collected. Currently, 25 of the 41 States that collect State income tax and the District of Columbia are participating. Further, FMS has issued regulations to enable Federal program agencies to garnish private sector wages. FMS views administrative wage garnishment as a powerful collection tool with enormous potential. So that agencies can take full advantage of FMS's centralized processes and established safeguards, we strongly encourage them to use administrative wage garnishment through Treasury's cross-servicing program. As you're aware, Mr. Chairman, the present contract with private collection agencies went into effect October 1, 2001. We reduced the number of collectors from eleven to five and have seen solid improvement in performance and service. Since the inception of this program in early 1998, the PCAs have collected $109 million; and for fiscal 2002, PCAs collected $43 million, which is up from $27 million in fiscal 2001. In 2001, FMS began phasing in Federal salary payment offsets. Of the five major salary paying agencies, the USDA's, National Finance Center and the Department of Interior, both of which process payroll for numerous Federal agencies, now participate. The U.S. Postal Service and Department of Defense have committed to participate by the end of this calendar year. In addition to collecting Federal non-tax debt, we have also begun to collect tax debt by levying Federal salaries. We collected $1.9 million for fiscal 2002. I am pleased to tell you of yet another element of our debt collection program that is close to fruition. FMS has completed system testing of the new offset of non-Treasury disbursed payments, and we're currently working with the Department of Defense and the U.S. Postal Service to test the transfer of data files between our respective systems. Debts in the FMS data base will be compared to DOD and Postal Service vendor payments, and when there is a match, DOD and the Postal Service will offset the payment. This will also be done for debts under continuous tax levy. We believe this initiative holds great promise and will significantly enhance debt collection, and we plan to implement the program next month. Barring delinquent debtors from obtaining Federal loans and loan guarantees is a high priority for FMS and for those Federal agencies with loan authority. FMS has been developing a system we call ``Debt Check'' that will allow lending agencies to access information from the FMS delinquent debtor data base so that government loans are not made to previously identified delinquent debtors. Debt Check is scheduled to be implemented as a Web-based initiative with agencies being phased in gradually. Mr. Chairman, in summary, Treasury's debt program is one that is both robust and effective and one that has consistently met or exceeded its performance measures. This concludes my remarks. I'll be happy to answer any questions that you or the subcommittee may have. Mr. Horn. Sure. Thank you. [The prepared statement of Mr. Gregg follows:] [GRAPHIC] [TIFF OMITTED] T9164.028 [GRAPHIC] [TIFF OMITTED] T9164.029 [GRAPHIC] [TIFF OMITTED] T9164.030 [GRAPHIC] [TIFF OMITTED] T9164.031 [GRAPHIC] [TIFF OMITTED] T9164.032 [GRAPHIC] [TIFF OMITTED] T9164.033 [GRAPHIC] [TIFF OMITTED] T9164.034 [GRAPHIC] [TIFF OMITTED] T9164.035 [GRAPHIC] [TIFF OMITTED] T9164.036 [GRAPHIC] [TIFF OMITTED] T9164.037 [GRAPHIC] [TIFF OMITTED] T9164.038 [GRAPHIC] [TIFF OMITTED] T9164.039 Mr. Horn. I'm now going to yield time for Mrs. Schakowsky, the ranking person for this subcommittee; and I'd like her to start--she hasn't had a chance to get some overlook of her own, and we'd then like her to have at least 5 minutes, and then we'll go back and forth between us. Ms. Schakowsky. Thank you. I thank you, Mr. Chairman. The work that you've done, along with my good friend Congresswoman Carolyn Maloney, on debt collection since the 104th Congress is really showing results; and I congratulate you and all of us on that. The testimony from Treasury indicates that 93 percent of the debt that should be referred for collection is being referred, a dramatic increase from the 43 percent referral in 1999. In fiscal year 2002, Treasury collected over $2.8 billion in delinquent debt; and a total of $15 billion has been collected since the law was passed. That is a significant accomplishment. Today we also heard that the situation at the Department of Agriculture has improved dramatically. The programs that last year were identified as troubled today are complying with the law. Both the Rural Housing Service and the Farm Service Agency have made major strides toward compliance. Both agencies still have significant room for improvement that will require, as noted by the GAO, ``sustained commitment by top management.'' The results of this legislation are even more important today than when it was passed. The Bush administration is running the government by spending more than is coming in. Congress has not passed the appropriations bills necessary to fund the Government in part because the Bush tax cut has left us with no way to fund those bills without running up the deficit. This challenge will be even greater in the next Congress. It's clear that the recession that began shortly after President Bush took office still has the economy in its grips. Most experts predict that the last quarter of 2002 will show little if any growth in the economy. Public confidence in the economy is at a 9 year low. Consumer spending that has kept the economy from slipping into a double dip recession appears to be slowing. Car sales, despite all the zero interest loans, dropped dramatically in October to the lowest level since April 1998. To make matters worse, jobs are disappearing left and right. Net private sector jobs fell by 29,000 in October, 17,000 in September. Layoffs rose from 70,000 in September to 176,000 in October. The length of unemployment is increasing, and the average number of hours worked is falling. Economists tell us that the most optimistic prediction is that we will repeat the jobless recovery of 1991 and 1992. Others are predicting another recession. In short, it's likely to be a difficult winter for many Americans. Debt collection is one tool to fill the Government coffers, though it's no substitute for sound economic policy. Debt collection which shrinks a family's income into poverty or which puts a firm out of business is counterproductive. Debt collection that unrelentingly pursues those who can't pay is wasteful and misguided. I appreciate the testimony that we've heard, and I want to thank the witnesses for taking the time to appear before us. [The prepared statement of Hon. Janice D. Schakowsky follows:] [GRAPHIC] [TIFF OMITTED] T9164.040 [GRAPHIC] [TIFF OMITTED] T9164.041 Ms. Schakowsky. I do have one question regarding the issue of child support. Would you explain--in Illinois, where I served in the State legislature, I saw child support as the collection--as the business of State government. I know Illinois ranks near the bottom, unfortunately. Hopefully, we'll--with the new Governor we're going to see some changes, but it's been a persistent problem. I understand how it would benefit the Federal Treasury if we do a better job of collecting child support. But what role does the Federal Government play in child support--in collecting child support? Mr. Gregg. We really work very closely with HHS and the States to collect child support to offset payments that we make. For example, for tax refunds, when we get referrals in from the States through HHS for delinquent child support we may--in fact, do--reduce the amount of the tax refunds that otherwise would have been made. So we're not the only source, but we are an important source. I think for fiscal 2002 we collected $1.4 billion in delinquent child support, and that's been pretty consistent for the last several years. So it's another tool that really helps the States in their role. Ms. Schakowsky. And is that the--are we maximizing our opportunities there, or do you see room for growth there as well? Mr. Gregg. Well, I think one thing that we would support would be to also provide to allow us to offset child support payments through the Social Security--for Social Security benefit payments, because there are some fairly significant amounts that could be collected--which sounds a little strange on the surface, but it nonetheless is the case. We could actually collect somewhere between $50 and $100 million additional if we had the authority to offset the Social Security payments. Ms. Schakowsky. And are you--in considering what the benefit is to the Treasury, do you look at things like food stamps or WIC or all of those that may not be needed to be paid out if the child support is collected? Is that part of the calculation? Mr. Gregg. Well, no. We basically rely on the referral from the States through the HHS that there's a delinquent child support debt. And if we have a payment that matches that, we offset it. Now if there's an issue on, you know, someone claiming that they can't afford to pay that, we really refer that back to HHS and the State. Ms. Schakowsky. OK. Thank you. That's all I have. Mr. Horn. I might add the day that the debt collection bill became law, when the President put his signature on it, I got a call from Commissioner Adams of Massachusetts. He said, you've made my day. And that's in line with Ms. Schakowsky, to make sure to track the deadbeat dads. This has been a side thing, but it's very important. Mr. Gregg. I might add, Mr. Chairman, that we have some of our staff here from our debt management service, and you know they're all very dedicated. But the fact is that it's one thing to collect Federal debt. It's another thing for them to see what they've done in the child support area. It really reinforces to them the importance of what they do. Mr. Horn. Well, let's go down the line a little. I'm sorry. Oh, Mr. Owens. I didn't see you. Yeah. Welcome. Mr. Owens. Thank you. Thank you, Mr. Chairman. Again, I want to salute you for your pursuit of this problem over the years. For more than half of my career in Congress I have been fascinated by this problem of debt collection, particularly within the Agriculture Department. I really want to salute you as a profile in courage, a profile in integrity, a profile of continuity. You've stuck with it, as you have with many other knotty problems of this kind. But I certainly am fascinated by the fact that such large amounts of money can be outstanding. You can fund whole categories of people. The welfare mothers in most of the States could be greatly helped if we just collect the debts from the Agriculture Department. The Agriculture Department does fascinate me because it seems to be the most recalcitrant and stubborn in terms of moving. Now there's a movement. I just want to clarify what I'm seeing here. When I first was introduced to the problem the outstanding debt was about $14 billion. The chart that appears at the end of your testimony, Secretary Moseley, do I read it correctly? We are now down from $14 billion to $6.1 billion. Is that--when you look at all these numbers, is that correct? Mr. Moseley. That is correct. Mr. Owens. What's really outstanding now is $6.1 billion. Mr. Moseley. That is correct. Mr. Owens. I think I was introduced to this problem about 10 years ago. So in 10 years we've gone from $14 billion down to $6.1 billion. How does this occur? I mean, do people get put in prison after a certain period of time and they haven't paid their debts? Does any action other than trying to coerce them to pay the debt take place? And how do some loans get written off? You wrote off about $1 billion I see here, written off. What does ``written off'' mean? It just sat there so long you got tired of trying to collect it and that person goes scot free? Or did they have to go bankrupt before it was written off? What happened? There's two questions there. Mr. Moseley. Well, we--first of all, I probably will have to turn to, from a historical perspective, someone who's been around the Department for a long period of time. But I think it's obvious what we try to do is pursue the individual to make sure that the obligation is paid. If it's in litigation, if it's in bankruptcy, there's a--then we are prohibited under the guidance of this act to pursue during that timeframe. But once that's cleared up and it's free to refer it to Treasury, then it's based upon their pursuit to collect those funds. If there's nothing to collect, then that money has to be written off. Mr. Owens. If there's nothing to collect, the money is written off; and the individual is scot free, though. There's no penalty. Nobody goes to prison for having defrauded the government. Mr. Moseley. I'm going to turn this over. Ms. Cooksie. I don't know that anybody goes to prison for being delinquent on a debt or not paying it, but there certainly are things that happen. There are even at--first of all, we don't write down and write off debt until we know for sure there are no assets left to collect it. And that's a long process. At that point, if we write down the debt, if there is any future availability for that borrower to have any income or anything else, then we do do things like we set judgments against them and we do collection efforts that are ongoing. And DCIA has certainly made that easier for us to do that. But, you know, there is--the fact of life is that the law that governs farm loan programs is under the Con act. There's a statutory provision for write-off for farmers in certain conditions. So we have to follow those laws for write-off. So there are certainly some farmers whose loans are written off at the end of the day when we determine there are no assets left to collect it. Mr. Owens. What's always fascinated me is the large amounts of money we're talking about. You're not talking about chicken feed here. We're talking about millions of dollars, $1 billion written off. And in many cases when I was first introduced to this there were some farmers who had loans outstanding which were in the millions of dollars. So to hear that if they just hang out there long enough the whole thing is just written off is very disturbing. But the question is, the practices that led to this were often very strange, too. There were committees, committees made up of people who had the power to recommend these loans, credit committees or farm loans, I forget the exact name. And on some of these same committees some of the people who had the biggest debts were sitting there on the committees long after the debt had been sitting there for a while. Have steps been taken to end that kind of legal racketeering? Because it was not illegal for them to be there. The rules said that--no rules said they couldn't be there. So you had a person who is able to seem to me log roll and in terms of other people--and while his debts are there, you know, safely couched away. Are the rules now clear so that a person who is delinquent is at least not kept in a responsible, decisionmaking position in this program? I'd hope that anyone in the Federal Government or in the private sector, anybody with $1 million worth of debt not being paid would also be tagged for what he is. But let's just start with the Department of Agriculture. Ms. Cooksie. In FSA and farm loan programs we do--well, in FSA in General we do have county committees that you're aware-- they're elected committees in each county. There is this notion that is wrong, that county committees do feasibility and eligibility determinations for farm loans. That is not true. They do for some of the CCC programs on the program side of the house. But for farm loan programs county committees don't have any authority or say-so in eligibility or determinations for our farmers. So even if you're on the county committee you really--and with the farm bill that just passed, all of the other things that the county committees did under farm loans is basically gone now. So the relationship with farm loans and county committees is very little, the way the laws are written now. Mr. Owens. They used to be called farmers home loan mortgages. Does that no longer exist? And that includes this statute here? Ms. Cooksie. In 1995---- Mr. Owens. Who's sat on the mortgage committees? You know-- -- Ms. Cooksie. Farmers Home Administration disappeared in 1995 with the reorganization bill. Mr. Owens. Yeah. I've been here since 1983, so---- Ms. Cooksie. 1995. Mr. Owens. OK. Ms. Cooksie. The farm loan portion of it went to what is now Farm Service Agency. The housing portion of it went to what is now Rural Development. Mr. Owens. Under the old arrangement were the committees from the farmers home loan mortgages different from the county committees? Ms. Cooksie. Absolutely. They were not elected committees. They were appointed. In Farmers Home Administration the county committee system was quite different from the way it is established in FSA. They were not elected committees, committee members. They were appointed committee members, absolutely. Mr. Owens. They were appointed committee members and there were no rules that said if you have big debts you can't sit there, right? Ms. Cooksie. There are no rules, and even in the farm bill law that just passed it's clear that Congress expected that county committee members would be able to get loans from the government. We even now have extended it to Federal employees. So there is no rule that says if you're on a county committee you cannot participate in the program. But there is a division in farm loans because they don't really have any say-so in the farm loan programs now. Mr. Owens. Thank you. The awesome power of the farm lobby in this country is more than just fascinating. Less than 2 percent of the population, they have the biggest bureaucracy second only to the Pentagon here in Washington. And they walk away with--what's the present authorization of--legislation is $600 billion in farm subsidies, the highest amount. The cap that was put on is less than--is about $250,000 that can be received by one farmer, one unit, whatever they call it, quota, whatever. It's awesome how much the American people shell out to the farm industry, and they continue really not to move at a very fast pace in terms of dismantling some of what I call almost legal racketeering practices that have existed there. Thank you, Mr. Chairman. Mr. Horn. Thank you. Let me go back to Mr. Gregg a minute. You said that your office remains committed to working with the Department of Agriculture to eliminate any barriers to its participation in your debt collection programs. What barriers do you see in this regard and how will you help eliminate them? Mr. Gregg. I think given the commitment that we heard last December and still today, assuming that continues, I really don't see many barriers. And I think that's true across Government. If we had the kind of top-level commitment that we've had in Agriculture last year, many of the issues would go away. Because when it gets right down to it you have some funding issues and priorities and computer systems, but unless you have the commitment, the rest really doesn't matter very much. Beyond that, I think we stand ready and I think we've done some consulting with them on the administrative wage garnishment regulations. We have not only program people but attorneys that are very knowledgeable about the program, and I think they have helped other agencies in Agriculture. If issues come up and questions of whether or not a debt should be referred to us or not, then we look at it, you know, as really a cooperative effort to try to figure that out; and that's the kind of thing that we stand ready to do. Mr. Horn. What do you see as the remaining barriers to ensuring that all agencies make maximum use of the Debt Collection Improvement Act and how will you help agencies overcome them? Mr. Gregg. Well, I think when you launched this program, and not surprisingly so, agencies saw or thought that they saw that they were losing something, and they were concerned about their programs and their constituents. I think over time that most of that has gone away and they're taking a broader perspective that what they're trying to do is still administer their programs but also collect these debts. Again, I think that the kind of commitment we've seen from Agriculture is really what's needed, and probably a periodic hearing on agencies that are still not quite there would probably be a good idea going forward. Mr. Horn. I notice you grew up in South Dakota so you know what a farm looks like. I must say I get a tear when I see the sheriff on TV and he goes to shout, just knock off the barn and everything else. I don't know how that's equity that has changed, and I don't know if you just have a feeling on that-- because I wouldn't want somebody--I'd make sure that before they face them with putting them out and not being able to plow their land or get it to farm and market and so forth. Moving on here, how concerned are you that the act's gainsharing provision has yet to be used and what can be done to encourage its use? Mr. Gregg. I think that gainsharing could have been quite useful in 1997 and probably 1998. I think where we are today, I'm actually not very concerned that it hasn't been used. I think the agencies, over time, have shifted priorities and have made it work so the progress that we've made in the last couple of years, I would say that I'm not very concerned that gainsharing hasn't been authorized through appropriations. Mr. Horn. How would you rate the effectiveness and responsibility of the private collection agencies that you've worked with at the Treasury Department? Mr. Gregg. They've been a very important tool for us, and I think it's even gotten better in the last couple of years as we've reduced the number of PCAs from eleven to five and have worked very effectively with them. Like anything else, it kind of depends on the nature of the debt and where they fit into the process. But they've been very effective. Like anything else, you need to manage it. It's not that we just have a contract with them and turn them loose. They're managed. We monitor the complaints we might get in from debtors on whether or not they were treated appropriately. Overall, it's been extremely effective for us. Mr. Horn. In your role as Commissioner to the Treasury's Financial Management Service, if the IRS is finally getting its act together in terms of the pots they've had over the years, that--starting with back when we got for doing something about it, and that was $60 billion sitting around and then $100 billion, would that come into your agency and manage it for IRS? Mr. Gregg. Well, we wouldn't manage it, but we have been working with IRS for the last, I don't know, I guess it's been a year and a half. They refer to us now tax debt and that's going quite well. There's still more potential there, but we've collected a fair amount in the last couple of years, and I think that will continue to grow. The working relationship between us and IRS is very good, and that's an important element of the program, even though it's not specifically under DCIA. Mr. Horn. The private collectors, how much of that is used on IRS liabilities? What can you say about that? Because in the past they wouldn't do it. About, oh, 8 years ago they gave us a phony presentation of when this would be moved, and it was already 5-year old debt, and that didn't hit anybody. This is before Commissioner Rossotti, but it was in that--going between commissioners. Do we have any problem like that right now? Mr. Gregg. The tax debt that we collect is all collected through levies. It is not subject to the cross-servicing program. I know that IRS and the Department of the Treasury are looking at the issue of whether or not to have IRS use PCAs, and I don't know how they are going to come out on that. But they are considering that. Mr. Horn. That is good, because there must easily be $20 billion somewhere with a decent operation. You have an excellent operation, and they ought to be able to get out and get that $20 billion when everybody is saying, gee, look, we are doing this, we might do something with Social Security-- which we won't, any more than anyone else does--and to see if you can get that $20 billion would be helpful. What do you think? Do you think it is at the $20 billion mark or the $50 billion mark on the IRS? Or is that not in--I don't mean to put the thing on the---- Mr. Gregg. I think you have seen that with Charles Rossotti and his deputy, Bob Wenzel, have certainly had increased focus on this. And I think through, their work, we were able to overcome some fairly tricky things on getting the tax debt referred to us for offset. You know, this past year, fiscal year 2002, we collected $60 million. I realize that is a small piece relative to what is outstanding, but I see that continuing to grow. Mr. Horn. We have, I believe, a figure that it is $100 billion to be collected if you really go after it. And now they all say, well, we just can't do it and so forth. With you already doing it, I don't know why we can't push in that area; and that will be good for you. So---- Mr. Gregg. Thank you. Mr. Horn. Well, you are such a good administrator. My gosh, here they are fiddling around over there and have been--when the word private collector drives them nuts. But to--we ought to try with it. You have seen that you get results. So we shouldn't--when we have got a good situation going right under everybody's noses, why we ought to try and see if we can do something. You say that four or five major Federal salary-paying agencies are participating or have committed to participate in the salary offset. What is the fifth agency, and why is it not participating? Mr. Gregg. The fifth one would be Veterans Affairs, and we have been working with them. I am not sure I can really say why it has taken that long, but I think one of the issues that they have been struggling with a bit are systems issues. But, as you may know, there is also a look, governmentwide, to consolidate the number of organizations that do the salary work. So I think maybe part of it is that they are kind of looking over their shoulder to see what is going to happen with that. Mr. Horn. Have you performed any reviews of the Treasury Department's cross-servicing program in order to determine whether it is cost-effective? Mr. Gregg. I think the cross-servicing program, if you look at it in the context of all of the work that we do in the debt collection area, is a very important part. Since we began cross-servicing, we have collected about $218 million. In addition to that, the amount of debt information that has been improved has been considerable, because, through that process, in some cases we go back to agencies and say, the documentation isn't there. You either have got to get the documentation or you have got to recognize that this debt isn't collectible. That whole process has taken place through our cross- servicing office. If you look longer term, that is going to continue to improve the quality of the debt information that is being reported by us and by the agencies. So I think it is an extremely important facet of our overall program. Mr. Horn. Let's move to the General Accounting Office. Mr. Engel, how responsive has the Department of Agriculture been to your recommendations for improving its debt collection? Mr. Engel. Mr. Chairman, all of the recommendations that we made in our recent reports issued last year have been addressed at some level. In some circumstances the recommendation has been fully implemented and in others there is a ways to go. Overall, I think we are pleased with the response that we received. But, as I had said in my testimony, it will really require a sustained commitment and priority by management to follow through on those remaining problems that still have actions to be done. Mr. Horn. What do you see as the major remaining challenges to fully implement the Debt Collection Improvement Act at Agriculture? Mr. Engel. I would say there is still several major challenges. A lot of the recommendations that I had just mentioned have not been completed, need to be followed through. Some of the major areas would be in the codebtor, referring the codebtor information over on the direct farm loans. While progress is being made on those and many of the loans have been identified as to who the codebtor is, there is still a significant dollar amount of debts that have codebtors that would need to be identified and referred over. The Farm Service Agency, when we had performed our work last year, we had found problems with their processes for identifying the accuracy of information being reported over through their referrals. Efforts are under way in that area, but there are still several things that need to be accomplished. In the administrative wage garnishment area, as I had mentioned in my testimony, the agency has developed a written implementation plan. It has developed draft regulations, but there are still other procedures, working out arrangements with Veterans Affairs and things that we will need to get completed. But I really think that will be an effective tool. It is one that priorities should be put on to get those problems issued. Mr. Horn. What is the situation with--is it the computing-- whatever--for VA? What is the problem there? Mr. Engel. For VA? Veterans Affairs is going to assist them in holding the hearings. Under administrative wage garnishment, the debtor could ask for a hearing; and Veterans Affairs is someone that the Department of Agriculture is looking to have perform some of those hearings for them. Mr. Horn. So it is a human situation in terms of--is there a particular percentage that one has in benefits and they are sort of working away at that--because that sort or rings a lot of bells--and would hear a lot of Members of Congress worried about that? Mr. Engel. For administrative wage garnishment, the way it would work is that the 15 percent of disposable pay can be taken from the employer's--or the employee's pay until the full debt is collected. Now, the disposable pay takes into account taxes and some of the sensitive things, health insurance, would come out before you would come down to what disposable pay is. Mr. Horn. Is there a problem that you see between benefits? Some are under HHS? Some are the States? And so what is the problem in trying to get into those things and see if it is overpayments or underpayments or what? Mr. Engel. As far as the debts that are--what is causing the results? Mr. Horn. Right. Mr. Engel. In some cases, the debts may be overpayments that were made as part of the program. That just--they went through and made the payment, and it wouldn't be until later that they discovered that those were errors in payments. In some cases, I think you actually could have fraud involved in some of the erroneous payments that are being made. There are efforts out at the agencies, at HHS, I know, that are taking place to try to identify and gauge the magnitude of what those erroneous payments are. Mr. Horn. Is this with regard to large groups, HMOs, and so forth, or is it the poor individual one? Mr. Engel. Well, I do know some of the payments are in regards to Medicare. You know, Medicare providers and payments such as those. I am not that familiar with exactly what all the erroneous payments are. Mr. Horn. I think there has been a lot of misuse. Has GAO ever looked at that? Mr. Engel. I have not myself. But, yes, GAO has done some work in what is called the erroneous payments, improper payments area. I believe we have issued a report in the last year on that subject. Mr. Horn. Yes. We had a bill on the floor yesterday, and it passed. It will go to the President. And, hopefully, the various agencies will have to come in with what type of--the part of--which I think was--we sought two different types, OMB, GAO, so forth. And it sort of--we are trying to sort it out. But that will be in the law, and hopefully GAO will be able to give us the best shot going to that. Mr. Engel. Yes, sir. We can do that. Mr. Horn. OK. Do you have a program working on that in GAO? Mr. Engel. I do know there have been individuals that have worked in that area. I could get back to you on the specifics. Mr. Horn. OK. Fine. What do you think of Treasury's progress in implementing the cross-servicing program? Mr. Engel. The cross-servicing program is one--has been one that has had a lot of success. Back in 1999 Treasury was able to merge their tax refund program along with their tax offset program; and that has resulted, along with some subsequent enhancement to the program, in significant increases in the amount of collections resulting from tax refund offsets. In the offset area as well, there has been successful--as Mr. Gregg has said, Social Security payments are now being offset, and there has been a significant amount of collections resulting from those. The area in which I think Mr. Gregg had touched on that still needs to be followed through on is in the Federal salary offsets. There are still some agencies that we need to follow through and get all of those Federal salary offsets. I believe I heard him say today in the non-Treasury disbursing office payments, with the Department of Defense and the Postal Service, those are major payment streams that still need to come in and be incorporated into the Treasury offset program, which I believe I heard within the next month or so, which will be a positive sign. Mr. Horn. Why do you think the act's gain-sharing provision has yet to be used, and what can be done to encourage its use as cedent from the General Accounting Office? Mr. Engel. It is unclear why the act has not been used. However, I believe there may be some reasons for that. One could be that the knowledge out there of the agencies as to the provision itself and how the account would work, I am not sure how much is known out there. Also, the requirement for there to be appropriations through Treasury to fund the expenditure out of the account has not helped. As we know, SBA has requested twice to get funding; and both times that authorization was not provided. Another thing may be that other agencies have seen that SBA's attempts were unsuccessful and they have not made attempts themselves. I concur, I think, partially with Mr. Gregg. I don't see the incentive as something that at this point is maybe quite as critical. We do support the concept of an incentive, but I think the act itself has enough provisions that if the agencies would take a higher priority and fully implement all of the provisions that we would probably see more success. But one thing that could be done to try to get a better feel in the gain-sharing area is to have FMS or someone reach out to these agencies and see why it is they have not used it. I don't know if that has been done yet. But that is one way to find out exactly. Is it because they are not aware of it? Is it because of other reasons? Mr. Horn. If I remember the law when it was put in, there was an incentive for the agencies which would help them get new computing--new systems, whatever. How has that been going, and is it a percent we had on there? Mr. Engel. Yes, it is a percent. The way it works--and again no one has used it yet, because the two attempts have been unsuccessful. But the way it works is that there is a baseline which is typically 5 percent of the collections in the previous year or 5 percent of the collection the previous 4 years, whichever is greater, and then an agency's collections for the current year. Five percent of that is taken and subtracted from that baseline. That would be the amount that they would be subject to requesting to have funding for. The funding can be used for different types of expenditures--some of which you mentioned, Mr. Chairman--to improve EDP systems, to be used for the debt collection. It can be used for asset sales as part of debt collection, to train individuals on credit management and debt collection. Mr. Horn. Yes. I think that is a very important point, that people work on these things, and it is a good idea to keep management systems going of people to get at the top of this. And it seems to me we ought to---- How do you feel, Commissioner, about this? Mr. Gregg. I generally like the idea of incentives. As I said, I think that maybe the--it is certainly not as important today as it was a few years ago. I think the issue, at least as I understand it, has been how the dollars would be scored. And I think in the case of the SBA they could have gotten some money, but it was going to come out of another one of their pockets, so they didn't see the great value in that. So it really gets down to that there has to be a separate appropriation made; and, you know, whether that is new money or whether that comes from within the agency's overall cap has been the underlying issue. Mr. Horn. Let us go back to Mr. Moseley. I was very pleased with your--what you have done with it, and I commend you and the Department of Agriculture with improved debt collection. What do you see as the most significant remaining challenges facing the Department in this area, and how will you deal with them? Mr. Moseley. Well, as I indicated in my oral remarks, we know that we have some work to do yet. We are partway there, we think we are a significant way there, but we have still have some work to do. As was pointed out by our colleagues here at the table, we still have this area of rulemaking for guaranteed loan losses, for single-family dwellings. We are in the process of trying to get that completed. We can't refer that debt until that is completed. As soon as that is done, then there should be an additional, fairly sizable portion of debt that gets referred. We also, as was pointed out, have to work on this issue of administrative wage garnishment. We have put together a working group within USDA. We have consulted across departments, agencies, and we are getting there. But we have to now push the ball over the line and try to get that completed. We still continue to see that as a fairly significant area that will help us in this whole thing. I think the final thing that I would comment on is, it is kind of broadly across the Department, but we have made some significant commitments in the area of technology in the last year. And as--it just appears to me, as we continue to move down this road, the technology is going to ease our ability to track and monitor and to accomplish this task. And so we have done a lot in terms of technology here. But if you start to visit with the CIO in the Department, he is pretty encouraging about some things that we can continue to do. So those are areas that we are going to continue to work on here in the next year; and, hopefully, a year from now, we will be able to make even a more complete report. Mr. Horn. The General Accounting Office notes that the Department of Agriculture needs to sustain its increased commitment to debt collection. How will you ensure that this happens? Mr. Moseley. Well, the first thing that you have to do is, quite frankly, you have leadership that says this is important. And I think we have demonstrated to you by the folks sitting here at the table and what we have accomplished in the last year that is an important value and that we are pursuing that. You have to also establish accountability. Someone has got to take responsibility for this. And then, once responsibility is accepted, you have got to make sure that the job gets done. So we have established some USDA-wide performance measures in this area. Then, once you get that done, you have got to turn those department-wide performance measures into program-level measures. And actually it gets down to the point where individuals have to be held accountable for what they are doing within the Department. So that becomes part of their performance evaluation. So you start at the top and you work it all of the way down to the individuals who are assigned this task. Mr. Horn. We have a little vote on the floor. But we will get there. You state that only $1.4 billion of the Department's $6.1 billion in delinquent debt is eligible for referral to the Treasury Department. So what are you doing to verify that no eligible debt is being excluded from referral to Treasury? How about it, Secretary? Ms. Cooksie. We have had to do a litany of things to make sure that is happening. The No. 1 thing we have had to do is train our field staffs in what DCI is and when to take off debts and when they don't. We have changed a whole litany of our directives in the regulations in our handbooks. And then we put some automation tools in place. Because, as the Deputy says, ultimately, that is going to be the best tool for us to track these accounts that need to be referred. The other thing that we have done in farm loan programs is that we have a bi-yearly review of every State and we have added the Debt Collection Act to that program review. So when we go out every other year to each State we see where they are physically, not just through the automation. So I think we have put some good measures in place to follow it through. Mr. Moseley. If I can also followup on that for a second, we have also asked the Office of Inspector General to monitor and to help us in this regard, and they have made that commitment. So not only are we at the program level trying to get it done, we also have our Inspector General that is looking at it to make sure that we are getting it done. Mr. Horn. Thank you. Well, I want to thank our witnesses today. When Deputy Secretary Moseley testified before us last December he made a commitment to turn things around at the Agriculture Department. By all indications, he has lived up to that commitment. I congratulate you for that, Mr. Moseley. We know that deputy secretaries run everything, so you have done a good job; and I hope that we can count on you to sustain that commitment in the future. Gary Engel and his colleagues at the General Accounting Office have provided invaluable assistance to the subcommittee and to the executive branch in terms of improving debt collection. I hope that the General Accounting Office will continue its vigorous oversight of Federal debt collection operations and its constructive recommendations for improvement. Last but not least, Commissioner Richard Gregg and his staff at the Financial Management Service has done an excellent job of implementing the Treasury Department's centralized debt collection responsibilities under the Debt Collection Improvement Act. I know that you and your colleagues will continue working hard on this effort. I might add that the Commissioner and I chatted about 2 weeks ago that there would be an A-plus in some things, and he said I will take a look at it. I now take a look at him, and you are an A-plus. So, Commissioner, you have done a great job under that law. All of you have. So thank you very much. I want to note and thank the people that put this hearing together. Bonnie Heald is the staff director for the subcommittee, to my left here and your right. Henry Wray is senior counsel. And then a little further down the line, Dan Daly, counsel, and Dan Costello of the professional staff. Chris Barkley is our majority clerk, and Ursula Wojciechowski--is she here? Yeah. She is working too hard--and Juliana French. Then the minority staff is Dave McMillen, professional staff, and Jean Gosa. She is also an expert on communications and technicians. Court reporters Tina Smith and Mark Stuart. Thank you very much. With that, we are adjourned. [Whereupon, at 11:30 a.m., the subcommittee was adjourned.] -